Isrotel (TLV:ISRO) Has Some Way To Go To Become A Multi-Bagger

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. Ideally, a business will show two trends; firstly a growing return on capital employed (ROCE) and secondly, an increasing amount of capital employed. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after briefly looking over the numbers, we don't think Isrotel (TLV:ISRO) has the makings of a multi-bagger going forward, but let's have a look at why that may be.

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What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Isrotel:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.087 = ₪367m ÷ (₪5.1b - ₪880m) (Based on the trailing twelve months to March 2025).

Therefore, Isrotel has an ROCE of 8.7%. On its own that's a low return, but compared to the average of 6.3% generated by the Hospitality industry, it's much better.

See our latest analysis for Isrotel

Historical performance is a great place to start when researching a stock so above you can see the gauge for Isrotel's ROCE against it's prior returns. If you're interested in investigating Isrotel's past further, check out this free graph covering Isrotel's past earnings, revenue and cash flow.

So How Is Isrotel's ROCE Trending?

The returns on capital haven't changed much for Isrotel in recent years. Over the past five years, ROCE has remained relatively flat at around 8.7% and the business has deployed 66% more capital into its operations. Given the company has increased the amount of capital employed, it appears the investments that have been made simply don't provide a high return on capital.

Our Take On Isrotel's ROCE

In summary, Isrotel has simply been reinvesting capital and generating the same low rate of return as before. Investors must think there's better things to come because the stock has knocked it out of the park, delivering a 152% gain to shareholders who have held over the last five years. Ultimately, if the underlying trends persist, we wouldn't hold our breath on it being a multi-bagger going forward.

While Isrotel doesn't shine too bright in this respect, it's still worth seeing if the company is trading at attractive prices. You can find that out with our FREE intrinsic value estimation for ISRO on our platform.

While Isrotel isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.